The prosperity and survival of the organization depend on timely adaptation to threats and opportunities, maintaining a high level of efficiency and process reliability, practicing strategic human resource management, and having an organizational culture with shared values that are consistent with the mission and competitive strategy. The relative importance of these perfor$-$ mance determinants for organizations, and the potential trade$-$offs among them, are determined by aspects of the situation such as the type of organization and the amount of change in the external environment. When changes in the external environment affect the capacity of the organization to carry out its mission, successful adaptation requires recognition of threats and opportunities, and the willingness to make changes in the processes, products, services, or the competitive strategy of the organization. Flexible, adaptive leadership is essential to deal suc$-$ cessfully with the trade$-$offs, competing objectives, and changing situations. The organizational culture can facilitate or hinder efforts to make major change.

A chief executive has more potential influence on the performance of an organization when there is a crisis and the competitive strategy is no longer aligned with its environment. A major change is more likely to be successful if it is initiated before a crisis becomes serious and while the organization still has slack resources needed to make the change. However, it is more difficult to initiate a major change when there is not yet an obvious need for it$.$ Major strategic change is most likely to be initiated by a CEO who is an external successor than by a CEO who has been in office for a long time. The different types of research described in this chapter show that despite all the constraints on top executives, they can usually have a moderately strong influence on the effectiveness of an organization. The outcome of a major change depends on what type of leadership is provided by mid$-$level and lower$-$level managers as well as by top ex$-$ ecutives, and the leadership decisions at different levels and in different subunits of the organiza$-$ tion must be consistent and coordinated.

An executive team is more important in a complex, rapidly changing environment that places many external demands on the CEO. Teams are also more important in an organization with diverse but highly interdependent business units, because a single leader is unlikely to have the broad expertise necessary to direct and integrate the activities of these units. The member characteristics necessary for team effectiveness depend on the organizational context, the exter$-$ nal environment, and the leadership provided by the CEO.

External monitoring provides information needed for strategic planning and crisis man$-$ agement. To detect threats and discover opportunities in a timely way, top management must ac$-$ tively monitor relevant sectors of the environment, sources of dependency for the organization, and current performance. Developing a strategy for adapting to the environment is an important responsibility for top executives, and the strategy is more likely to be effective if it builds on core competencies, is relevant to long$-$term objectives, and is feasible in terms of current capabilities.

Review and Discussion Questions

$1.$ What are the major performance determinants for organizations?

$2.$ How can leaders influence each type of performance determinant?

$3.$ What is organizational culture and how can leaders influence it$?$

$4.$ What conditions limit the discretion of a CEO?

$5.$ What determines the effectiveness of executive teams?

$6.$ How do shared leadership, relational leadership, and complexity

theories increase our understanding of leadership in organizations?

$7.$ Why is external monitoring important for strategic leadership?

$8.$ What are some guidelines for strategy formulation?